Overseas companies invested $59.1 billion in factories and other projects in China from January to June 2012 -- well below the $60.89 billion spent in the same period last year -- said ministry spokesman Shen Danyang.
"The pace of the world economic recovery remained slow, and many uncertainties persisted. In particular, the EU debt crisis has yet to be resolved," Shen told reporters.
Increased Chinese production costs and a tightening in property policy had also contributed to the decline in first-half FDI, he added. China's inflation rate hit 6.5 per cent in July last year, but has since slowed.
The world's second-largest economy grew 7.6 per cent year on year from April to June, the slowest pace in more than three years as dire problems overseas started to hit home, according to official data released on Friday.
In June alone China's FDI fell by 6.9 per cent year-on-year to $12 billion, despite a slight rebound in investment from the debt-ridden European Union.
EU countries invested a total of $3.52 billion in China in the first half, up 1.6 per cent on the same period in 2011, compared with a 5.1 per cent fall in the first five months of the year.
But investment from 10 Asian nations and territories including Hong Kong, Macao, Japan and the Philippines was down 2.8 per cent year-on-year at $51.07 billion, while US investment fell 3.2 per cent to $1.63 billion.
However, Shen said the government expected FDI to increase steadily for the full year as the effects of China's policies to bolster economic growth and increase domestic demand kicked in.
"This will boost the confidence of foreign investors in China and help them speed up the pace of their decision-making," he said.
The government this month took the rare step of slashing interest rates for the second time since early June. That came after three cuts since December in banks' reserve requirements, or the amount of money they must keep on hand.
Such cuts are meant to free up funds for lending in order to boost the economy.
Chinese leaders have vowed to take further measures. Premier Wen Jiabao last week called stabilising economic growth the government's top priority.